Amazon has reported strong growth metrics across business segments in recent years. Much of the company’s top line growth has been on an organic basis, with the only major exception being the $13.7 billion addition of Whole Foods and resulting physical stores to Amazon’s offerings. Amazon’s core online retail business is the largest individual segment, contributing over 60% of net revenues in 2017. The segment continues to grow rapidly despite tougher year-over-year comparisons due to a large base. Amazon’s total online sales have grown at nearly 20% annually in the last two years, increasing from $77 billion in 2015 to $108 billion in 2017. In the first half of 2018, revenue growth has remained in the high teens.

Going forward, we expect Amazon’s combined global online sales to increase from $130 billion in 2018 to over $180 billion by 2020. We forecast the company’s net revenues to increase from $178 billion in 2017 to $235 billion this year. We further expect this figure to increase to over $340 billion by the end of the decade. Accordingly, the online sales business is expected to contribute around 44% of Amazon’s overall revenue growth in the same period. We have summarized our expectations for segment growth through 2019 and 2020 on an interactive dashboard for Amazon’s Online Sales. Below we take a look at key revenue drivers for this segment.

Factors Driving Segment Growth

Amazon categorizes its total revenues into six key segments that include online store sales, physical stores, Amazon Web Services, subscription services, third-party seller services and other services. Online store sales include revenues from sales on Amazon’s websites and apps including digital media content, which are both recorded on a gross basis. Total sales include products sold via Amazon’s platforms as well as the company’s own products such as Kindle, Fire TV Stick, Fire Tablet, and Echo speakers. It should also be noted that while media products – such as books, music, videos, games and software – are available in digital formats, sales include these digital products sold on a transactional basis. On the other hand, digital product subscriptions that provide unlimited viewing or usage rights are included in the company’s subscription services revenues (which are generated through Prime subscriptions).

Combined online sales rose from $77 billion in 2015 to $108 billion in 2017. In the same period, global e-commerce sales surged from $1.7 trillion to $2.3 trillion, per eMarketer estimates. Amazon’s implied share of global e-commerce has remained below 5% in this period. The figure fell from 4.95% in 2016 to 4.70% in 2017, presumably due to Alibaba’s increasing presence in global e-commerce. We forecast Amazon’s share in the global e-commerce retail market to fall by 10-12 basis points annually to around 4.42% of global market share by 2020, which is still a massive presence. Global e-commerce sales are expected to continue to increase rapidly due to higher internet and smartphone penetration in emerging markets across Asia, Africa and Latin America. In addition, the transition of retail purchasing from brick-and-mortar to online is expected to continue through the end of the decade in mature markets as well.

Trefis

As a result, global e-commerce retail sales are expected to increase to $4.1 trillion by 2020 from $2.8 trillion in 2018. As a result, Amazon’s online store sales are forecast to increase from around $130 billion in 2018 to over $180 billion by the end of the decade. If you disagree with our forecasts, you can modify these figures on our valuation dashboard for Amazon to calculate a valuation estimate for the company’s stock. The Trefis price estimate for Amazon stands at $1,650, implying a valuation of $830 billion, slightly below the current market price. Amazon’s stock price steadily climbed up from $1,200 in January to $2,000 in September this year, before falling by over 10% of late.

Led by MIT engineers and Wall Street analysts, Trefis (through its dashboards platform dashboards.trefis.com) helps you understand how a company's products, that you touch, read, or hear about everyday, impact its stock price. Surprisingly, the founders of Trefis discovered...